Investing in UK Infrastructure

Investing in UK Infrastructure will give the UK economy a 100bn boost

At Anderselite, we like to keep an eye on the news headlines and recently, a report from the Centre for Economic and Business Research (CEBR) caught our eye. According to their findings, investing in infrastructure in the UK could be the key to economic recovery.

The report states that this investment could potentially generate £2.84 for every £1 invested and would produce measurable economic benefits within 12 months. The findings recommend that the British government should spend 1% of GDP on infrastructure over the next five years.

The report compared the UK to overseas competitors and concluded that our GDP could be up to 5% greater if our infrastructure was up to the standard of our global rivals. The overall effect of this would be to contribute £100billion to the UK economy annually by 2026.

There is also a knock-on effect in both employment and GDP terms. For each 1,000 jobs created in infrastructure related construction, employment as a whole increases by approximately 3,000. For each billion pound increase in investment in infrastructure, UK-wide GDP increases by around £1.3billion.

The report concludes that now is the time for government to take action by introducing a formal threshold for infrastructure construction activity, to ensure that it does not fall below a competitive level - 0.8% of GDP. In addition, targets should be set for the next five years at 1% of GDP or above to kick-start the improvements needed to compete with other countries.

Meanwhile the IMF has also released a report which acknowledges that there have been signs of an upturn in growth in the UK economy, but it warns that Britain is still some distance away from a 'strong and sustainable recovery' due to various factors. These include the proposed programme of government cuts, a shortage of lending by banks and the eurozone crisis. However, the IMF's findings did indicate that green shoots of recovery could be built upon mainly by cuts in business taxes and an increase in infrastructure spending, which would offset the effect of the planned cuts that the Chancellor has in mind.

The report suggests the Chancellor has not gone too far with the cuts, stating that they were 'essential' to reduce the current £159billion deficit, but points out that cuts will of course have some braking effect on growth. Mr Osborne agreed with the findings on the subject of infrastructure investment, concurring that it is 'right to prioritise where we can'. Going into more detail about how to strengthen growth, the IMF report calls for increased spending on social housing and repairs to schools, but warns that there is no single solution.

All parties concerned agree that investing in infrastructure strengthens the economy in the long-term by securing jobs and encouraging foreign investment. Companies from abroad considering setting up shop in the UK certainly take the state of the infrastructure into account and even the government agrees that this is in need of a serious upgrade. The £250billion required will need to come from the private sector as well as government investment.